Out-of-State LLC Owning Property in California

Experienced San Jose, CA Foreign LLC Lawyer Ready To Assist You

LLC in San JoseMany California residents are members of LLCs formed under the law of other states (often referred to as “foreign LLCs”). California, being hungry for tax revenue, often tries to tax the LLC on the ground that it is doing business in California. Obviously, if a Delaware LLC owns rental property in California and is generating rental income from the property, it would be considered to be doing business in California.

But what if the resident forms an out-of-state LLC simply to hold raw land or a personal residence for the owner (either a principal residence or vacation home)? Ownership alone is not a business activity, and assuming there is no rental of the property, it might seem that the LLC is not doing business in California. But things are not always what they seem when it comes to tax law in California.

Under California Revenue and Taxation Code § 23101(b)(3), if a foreign (out-of-state) LLC’s real property and tangible personal property in California exceeds $71,154, the foreign LLC is statutorily deemed to be doing business in California. Property is valued at the taxpayer’s cost.

Given that most California real property probably cost more than $71,154, any foreign LLC that owns real property in California is likely to be doing business in California, which will require it to register with the Secretary of State, file tax returns with the Franchise Tax Board, and pay tax to California.

An LLC Operating Agreement in San JoseBy the way, in case you are wondering why an odd number like $71,154was chosen, the answer is that the original figure was $50,000, and the FTB is authorized to increase the original figure by an inflation factor, which it has done. The $71,154 figure is the figure as of 2023. The figure may increase in future years.

If you need assistance with the business formation, buy-sell agreements, or outside general counsel, contact Attorney Richard Burt. Serving San Jose, CA, and all of the San Francisco Bay areas, Mr. Burt can be reached at (408) 286-7333 or by filling out the online contact form.

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